Economy ministers of member countries of Banco del Sur are meeting today in Caracas to define the operational details and implementation of this financial institution – a new regional funding entity independent of the International Monetary Fund (IMF) and the World Bank.
Hernán Lorenzino, the minister of economy and public finance of Argentina, Luis Arce, Bolivian minister of economy and Carlos Marcio Cozendey, secretary of international affairs at the Brazilian ministry of finance, have already arrived to the Venezuelan capital.
Paraguay is the only country that has not confirmed the attendance of any representative at the meeting.
Ministers are expected to establish a ‘start date’, when each country will have to make its contribution to the newly founded institution. As a full member and founder, Argentina will provide US$400 million to Banco del Sur.
Days ago, Ricardo Patiño, Ecuadorian foreign affairs minister, had stated that the new bank “can be used to bail out a country, small or big, and meanwhile not have to submit to the dictates and conditions of the IMF.”
Banco del Sur is a result of an initiative by the late leader of Venezuela, Hugo Chávez, and was formalised in February 2007 when he and then Argentine president Néstor Kirchner signed a memorandum of creation, which also included Bolivia, Ecuador, Uruguay, Brazil and Paraguay.
The South American financial institution aims to promote development, economic growth and improvement of infrastructure in all member countries.
The entity’s constitutive agreement establishes that Banco del Sur will have US$20bn of authorised resources and subscribed capital of US$10 billion, with US$7 billion in initial contributions by partner countries. A member contributes according to the capacity of its economy.
The headquarters of Banco del Sur which began preliminary operations on 3rd June is in Caracas, but also has offices in Buenos Aires and La Paz.
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The Union of South American Nations (UNASUR) has announced that it will create a united defence body to promote democratic stability among its member countries.
Military delegates of Argentina, Brazil, and Ecuador concluded a two day meeting yesterday in Quito, and agreed on creating the first South American Defence College (ESUDE) – a safety training centre with the aim of turning “the regions into a zone of peace”.
UNASUR has said that the idea behind the project is to “eliminate outdated visions that have formed our military, with manuals and taxes from foreign powers.
“The goal is to start from scratch and consider a defence doctrine, without starting from the premise of opposing countries. It is important to define our role in the military, to assume responsibility for prevention, border control or emergency responses.
“We want to create a body of higher and postgraduate education to create a regional identity for civilians and our military, and to avoid interference of other countries or geopolitical zones,” a UNASUR spokesperson said.
The ESUDE proposal paper will be presented at the next meeting of the executive body for the South American Defence Council in Lima, Peru on the 16th and 17th May. Members who attended yesterday’s meeting in Quito will meet again during the second week of July in Buenos Aires, to define the Esude proposal.
One of the issues that is expected to be up for debate in the following meetings is the level of participation in the armed forces from each country.
The initiative already has the support of other member countries, including Argentina, Brazil, Ecuador, Peru, Venezuela, Guyana, Suriname, and Uruguay.
- UNASUR Urges Respect for Venezuela’s Electoral Results (venezuelasolidarity.co.uk)
- U.S. refuses to recognize Maduro’s presidential win in Venezuela polls (panarmenian.net)
In conversations with reporters in the city of Guayaquil, the Ecuadorian president discounted the expulsion of the U.S. ambassador for now, but recommended that he be more considerate with this country.
Correa described the U.S. ambassador’s participation in an activity organized by a journalists’ guild opposed to the government, as “rude,” where the alleged lack of freedom of speech in Ecuador was criticized.
“Why don’t the other ambassadors participate?” Correa asked. “Rarely have we seen so much betrayal of a calling by the U.S. ambassador, who is really trying to create an uncomfortable situation,” the president said.
Citing Namm’s words that Washington is very concerned, Correa replied that he could go home and worry from there.
“This fact, I think, was a slip by the ambassador, which says a lot about his vision. He believes that he comes to impose conditions, and who has told him that is his role?” Correa asked.
According to Correa, the action is scarcely relevant, but warned against it continuing. “Make no mistake, we are facing immense power,” he said.
Bloomberg’s Nathan Gill wrote a particularly one-sided article on Thursday, in which he states that “Ecuador’s bid to reduce poverty by taxing its banks is threatening to deepen the nation’s economic slump.”
“Slump” seems somewhat dire to describe the state of the Ecuadorian economy. In 2012 the economy grew by 5 percent, and it is projected to grow by 4.45 percent for 2013.
The report also offers no convincing evidence that Ecuador’s taxation of its banks is hurting the economy.
The article specifically focuses on a set of reforms that took effect on January 1, including the elimination of banks’ tax deductions for reinvested profits and a 0.35 percent tax on assets held abroad. The reporter argues that a sharp drop in bank profits in the first quarter of this year was a result of the taxation. He then argues that an increase in the banks’ interest rates must also be due to the reforms:
Non-government banks, including Citigroup Inc (C).’s local unit, raised rates on corporate loans by an average 0.21 percentage point in the first quarter to 8.88 percent, the highest since November 2010, according to central bank data. That compares with a decline of 0.72 percentage point to 8.81 percent in Colombia and an increase of 0.01 percentage point to 5.79 percent for similar loans in Peru.
However, this causality is not at all clear. It is more likely that this modest increase in interest rates is attributable to a recent uptick in inflation. Consumer prices increased at an annualized rate of 4.6 percent in the first quarter of this year, as compared to a rate of 0.2 percent in the last quarter of last year.
The reforms that increased taxes on the banks were reportedly enacted to pay for increasing cash subsidies for the country’s poor, and they were passed by congress in a 79-5 vote. Gill describes these changes as having been motivated by an election race that Correa was all but certain to win, rather than being the latest step in a determined and so-far successful process to transform a country that, like many in the hemisphere, has been historically plagued by inequality. It is perhaps worth noting that Ecuador has seen some of the region’s highest growth over the past few years. Furthermore, economic gains have been broadly shared and increased social spending has significantly improved the quality of life of a broad portion of the country’s citizens.
As CEPR’s recent report on Ecuador’s financial reforms describes, President Rafael Correa’s actions in recent years are a major reason why the government has raised revenue and consequently been able to pursue expansionary fiscal policy and increased social spending. The results of this policy regime have included the lowest unemployment rate on record, a near-halving of the poverty rate, and a doubling of education funding, among other gains.
Yet, from this article, one would be led to believe that new taxes on the financial sector have only led to lower bank profits, which are presented as a serious problem for the country’s macroeconomic outlook. Among Gill’s quoted sources are the CEO of Ecuador’s biggest brokerage firm, the director of a market research and consulting firm, and the president of the country’s Private Banking Association. Their views should come as no surprise, but they are not necessarily the full picture or even accurate.
The article (on the second page) also quotes Pedro Solines, Ecuador’s banking superintendent, as saying “Less profits for the banks, yes, but where does it go? To the people who receive the subsidy.” The quote continues with Solines saying, “If I receive the subsidy, I’m going to say that the impact is very good. If I run a shop where the person who receives the subsidy spends not $35 but $50, I’m going to say it’s good. If I’m a bank, I’m going to say I’m doing badly.”
Correa was re-elected on February 17, receiving 57 percent of the vote compared to his closest competitor’s 23 percent.
- Ecuador begins to roar | Fander Falconi (guardian.co.uk)
With Rafael Correa emerging victorious for a third and final term in Sunday’s presidential elections, the leader of the Alianza País party spoke to Argentine newspaper Página 12 about Ecuador becoming part of the Mercosur agreement, their relationship with Argentina, and same-sex marriage. During the interview, he also announced that his party obtained “97 or 98 seats” in the National Assembly, though the final results of the recount are yet to be announced by the National Electoral Council.
In the interview, Correa first discussed the strengthening of ties with Argentina by “further deepening the bilateral relationship” through trade, and agreed with President Cristina Fernández de Kirchner’s condemnation of the “total surrender of our countries at the hands of transnational corporations”. Correa went on to say however that the relationship between the two countries is more than commercial because “with Argentina we have the same political vision”.
Throughout the interview Correa expressed his hope to join Mercosur, and when asked if the dollarisation of Ecuador would hinder the incorporation into the agreement, Correa agreed that it is “an obstacle for any integration process and trade liberalisation”. However, he insisted that “we are very interested in joining Mercosur… and they are very interested in integrating Ecuador”.
Speaking of the impending expiration of the Andean Trade Promotion and Drug Eradication act (ATPDEA), Correa said, “Andean countries have a responsibility [to join these agreements] because they are the biggest producers of drugs! But the US say nothing of the responsibility they have for consuming them.” He went on to say that this agreement is “a new form of pressure for countries that do not behave according to the mentality of the US”, and that “if [the act is] extended, fine, if not, we will know how to succeed.”
As the interview progressed, Correa was questioned on the topic of same-sex marriage, in which he responded that, “the Constitution says that marriage is an institution between people of a different sex”. Correa said that although “we promote many rights and the non-discrimination of any person for any reason… the Constitution clearly says that marriage is between a man and a woman.”
Finally, when asked if the continuation of his government would mean a less restrictive abortion law, Correa said that, “personally I will not promote any law that goes beyond the two cases that are already covered in the current legislation, in the case of a violation of a woman with intellectual disabilities and in the case of rape, when a child is violated.”
You can read the interview in full here.
International media reporting ahead of Ecuador’s elections today has sounded familiar themes, understating the achievements of the Rafael Correa government and attributing Ecuador’s recent economic and social progress to “luck” or happenstance, and high oil prices. Correa is depicted as an enemy of press freedom, despite the fact that Ecuadorean media is uncensored and the majority of it opposes the government; and despite his granting of political asylum to Julian Assange. He is also depicted as a member of Latin America’s “bad left” who has ambitions of regional leadership should “bad left” leader Hugo Chávez succumb to illness or otherwise be unable to continue in office.
A common theme in press accounts is that the Correa administration’s social programs are “funded by the country’s oil proceeds.” While some reporting has gone deeper and noted that “Correa has taken on big business and media groups, imposing new contracts on oil companies and renegotiating the country’s debt while touting his poverty reduction efforts,” others have not. “High prices for oil exports resulted in higher revenues which the government invested in social programs and public infrastructure,” the Christian Science Monitor reported in a Friday article. The New York Times’ William Neuman presented a contradictory picture of the economic importance of Ecuador’s petroleum sector, writing that “Ecuador is the smallest oil producer in the Organization of the Petroleum Exporting Countries, yet oil sales account for about half of the country’s income from exports and about a third of all tax revenues, according to the United States Energy Information Administration,” just before stating in the next paragraph that “Mr. Correa has taken advantage of high oil prices to put money into social programs, earning him immense popularity, especially among the country’s poor.”
Petroleum exports have been important to Ecuador’s economy for a long time; this did not suddenly come about with Correa. While Correa was favored by high oil prices during most of his six years in office, the collapse of oil prices in 2008 was a major blow to the economy. Also, an important change during Correa’s first term has been the Ecuadorean government’s relationship with foreign oil companies. Correa notably has driven a much harder bargain than his predecessors, “imposing a windfall profits tax for concessions made to companies for the exploitation of domestic natural resources” that “raised over $500 million for the government in 2010,” as our latest paper notes. A raft of financial and regulatory reforms have also put a considerable amount of revenue in the government’s coffers, contributing to the increase from 27 percent of GDP in 2006 to more than 40 percent in 2012. Stimulus spending – 5 percent of GDP in 2009 – boosted the economy and allowed Ecuador to get through the global recession with minimal damage, losing only about 1.3 percent of GDP during three quarters of recession, despite being one of the hardest hit countries in the hemisphere by external shocks. Non-petroleum sectors such as construction, commerce and services have also been important drivers of growth in recent years, including in 2011, when Ecuador had some of the highest real GDP growth in the region at 7.8 percent, second only to Argentina in South America.
As we have pointed out, this additional revenue has in turn allowed the Correa government to ramp up social spending in ways that are significantly improving Ecuadoreans’ living standards. While much news coverage has reported that state spending has boosted Correa’s popularity and may explain his huge lead (some 20 – 50 percentage points, according to polls) over his opponents coming into the election, some reporting has characterized this – as with last year’s election coverage of Venezuela’s state spending– as a form of vote-buying. “Public policies and subsidies are needed to temporarily keep certain sectors content,” the Christian Science Monitor quotes an analyst as saying. “[T]hey also give him votes.” The Associated Press described this as state “largesse,” a term that Merriam-Webster’s dictionary defines as “liberal giving (as of money) to or as if to an inferior; also: something so given.” The media seems at times to forget that the purpose of economic development is to raise peoples’ living standards.
The New York Times presented Ecuador’s recent economic progress by using a passive voice: “[Correa] has governed during a period of relative prosperity,” which not only understates the impact of the Correa administration’s policies but also the challenges presented over the past several years – most notably the global recession, which collapsed not only oil prices but remittances, on which Ecuador was also heavily dependent.
Some reporting has understated some of the ways in which the government’s policies have impacted Ecuadoreans’ lives. For example, the Associated Press reported that “The bulk of [Correa’s] backers are poor and lower-middle class Ecuadoreans who in 2010 represented 37 and 40 percent, respectively, of the country’s population according to the World Bank.” Bloomberg’s Nathan Gill, meanwhile, wrote:
As the head of a nation where about one in three of its 15.4 million citizens live in poverty, Correa defaulted on $3.2 billion of bonds in 2008 and pushed through laws nationalizing the country’s oil reserves during his first two terms in office. While the moves provided short-term gains, the 49-year-old Correa, an ally of Venezuela’s Hugo Chavez, is now paying the cost with stagnant crude output and declines in private investment needed to boost slumping growth.
In fact, as we noted in our new paper, “The national poverty rate fell to 27.3 percent as of December 2012, 27 percent below its level in 2006,” (before Correa came to office). (The New York Times’ Neuman noted this accomplishment: “In a country of 14.6 million people, about 28 percent lived in poverty in 2011, down from 37 percent in 2006, the year before Mr. Correa took office, according to World Bank data.”)
Nor are Ecuador’s recent gains “short term,” as Gill described them. The data shows sustained progress on reducing unemployment and poverty, for example.
Other common themes include that Correa has clamped down on freedom of press. Such statements are often ironically followed by mention of Correa’s granting of political asylum to Wikileaks founder Julian Assange, such as in the Christian Science Monitor sub-header “President Correa has been criticized internationally for limiting press freedoms and granting Julian Assange asylum in Ecuador’s London embassy.” Readers of AFP might be led to believe Assange was granted asylum in order to “irritat[e] the United States …after the anti-privacy group released tens of thousands of secret US military and diplomatic reports.”
Press coverage has emphasized that Correa is “an ally of Venezuela’s Hugo Chavez,” rather than a friend or “ally” of Brazilian President Dilma Rousseff, for example. This meme positions Correa as “part of a group of leftist presidents in the region that include Mr. Chávez in Venezuela and Evo Morales in Bolivia,” also known as the “bad left” in Washington policy circles and among media commentators. (Brazil has always been considered part of the “good left,” despite the Brazilian government’s longstanding support for Chávez, Morales and other “bad left” leaders and opposition to various U.S. government projects and policies.)
Another theme has been whether Correa seeks to be – or has the potential to be – a “successor” to the “ailing” Hugo Chávez in a “regional leadership role.” The New York Times’ Neuman wrote on Friday that “[A new four-year term] may also give Mr. Correa a chance to raise his international profile. With the ailing president of Venezuela, Hugo Chávez, sidelined by cancer, Mr. Correa is arguably the most vocal leftist leader in the region.” No evidence for Correa’s supposed regional leadership ambitions is presented, other than that “He made international headlines last year when he defied Britain by granting asylum to Julian Assange, the founder of WikiLeaks.”
- Ecuador’s Correa breezes to 2nd re-election (businessweek.com)
President Rafael Correa swept to a re-election victory on Sunday promising to strengthen state control over Ecuador’s economy and continue using booming oil revenues to build roads, hospitals and schools in rural areas and shanty towns.
Correa won 58% of the votes compared with 24% for runner-up Guillermo Lasso, according to preliminary results released by the electoral authority based on almost 40% of the votes counted. Correa was so confident of his victory that he appeared on state TV less than an hour after polls closed.
“Nobody can stop this revolution,” a jubilant Correa told supporters from the balcony of the Carondelet presidential palace, after claiming victory. He added “we are making history; we are building our own homeland which is Ecuador and the great homeland which is Latin America.“
The populist US-trained economist took power in 2007 and has won strong support among the majority of the population of the country which is poor.
Correa, 49, may now be in line to become Latin America’s main anti-American voice and de facto leader of the ALBA bloc of populist governments as Venezuelan President Hugo Chavez has been silenced during his battle with cancer. Correa said he dedicated his victory to Chavez.
The principal challenge in Correa’s new four-year term will be wooing investors needed to boost stagnant oil production and spur the mining industry. A 3.2 billion dollars debt default in 2008 and aggressive oil contract negotiations scared many off.
Critics view Correa as an authoritarian leader who has curbed media freedom and appointed aides to top posts in the judiciary.
But the fractured opposition failed to make a consolidated challenge. It fielded seven candidates, making it easy for Correa, and he is now on track for a decade in office.
That is rare stability in a country where three presidents were pushed from office by coups or street protests in the decade before Correa took power in 2007. He is already the longest-serving president in Ecuador since the return to democracy in the 1970s following a military dictatorship.
Correa’s success has hinged in part on high oil prices that allowed for liberal state spending, including boosting cash handouts to 2 million people, and spurred solid economic growth.
He has promised to diversify the economy away from its dependence on oil, in part by bringing in new investment for the mining sector. Despite promising reserves of gold and copper, mining operations have barely gotten off the ground.
In a news conference on Sunday after polls closed, Correa played down the need for more foreign investment. He insisted the ultimate goal was to ensure economic growth rather than ”mortgaging“ the country to bring in cash from abroad.
”We welcome foreign investment, and we’re already getting plenty of it,“ Correa said. ”Ecuador is one of the most successful economies in Latin America.”
Ecuadorans also chose a new Congress on Sunday.
The ruling Alianza Pais party was expected to win a majority in the legislature, which would let Correa push ahead with controversial reforms, including a media law and changes to mining legislation, without having to negotiate with rivals.
The results of the vote for Congress are not expected to be known for several days.
On Sunday Ecuadorians will head to the polls to vote for a president and vice president, members of the National Assembly, mayors, and other elected officials. As we’ve done ahead of other elections in Latin America, CEPR has published a report offering some economic context to help understand the choices that voters are likely to make.
The report, entitled Ecuador’s New Deal: Reforming and Regulating the Financial Sector, focuses on the innovative financial reforms that have been implemented since President Rafael Correa took office in 2007. The report explains how these measures helped Ecuador recover from some of the hemisphere’s worst shocks during the world recession. It also shows how the reforms contributed to a substantial increase in government revenue much of which has been channeled toward health, education, housing and other social spending. Given these advances, it is not surprising that the latest polls put Correa at 50 percentage points ahead of his closest opponent.
Earlier today, CEPR issued the following press release outlining the contents of the paper:
A new paper from the Center for Economic and Policy Research (CEPR) examines the financial reforms carried out by the Rafael Correa administration, reforms which the paper concludes are in large part responsible for the economic success Ecuador has experienced over the past several years, including its successful counter-cyclical policies during the global recession after 2008. The paper, “Ecuador’s New Deal: Reforming and Regulating the Financial Sector,” examines the Correa government’s taking control of the Central Bank, implementation of capital controls, increased taxation of the financial sector, and other regulatory reforms. It concludes that these played a major role in bringing about Ecuador’s strong economic growth, increased government revenue, a substantial decline in poverty and unemployment, and other improvements in economic and social indicators.
Ecuador will hold presidential elections on Sunday, February 17. Correa is almost certain to be re-elected; Reuters reports that he “has a lead of as much as 50 percentage points over the nearest of his seven rivals in opinion polls.”
“Ecuador has gone against the conventional wisdom and shown that there are alternatives,” CEPR Co-Director Mark Weisbrot and lead author of the paper said. “By pursuing policies that have prioritized economic development, employment, and poverty reduction over financial and foreign interests, Ecuador has surmounted some of the problems that had previously held it back, and that have hampered progress in other countries.”
The paper notes that by the last quarter of 2012, unemployment had fallen to 4.1 percent, its lowest level on record (for at least 25 years), while the national poverty rate fell to 27.3 percent as of December 2012, 27 percent below its level in 2006.
The paper finds that financial reforms contributed significantly to an unprecedented rise in government revenue under Correa, from 27 percent of GDP in 2006 to more than 40 percent in 2012. This not only allowed for vitally important expansionary fiscal policy, but also a large increase in social spending. The biggest increase was in housing, but there were also significant increases in health care spending and other social spending. The government’s most important cash-transfer program (the Bono de Desarollo Humano) increased by one-fourth, and education funding more than doubled, as a percent of GDP, from 2006-2009.
The paper concludes that “What is most remarkable is that many of these reforms were unorthodox or against the prevailing wisdom of what governments are supposed to do in order to promote economic progress. Taking executive control over the central bank, defaulting on one-third of the foreign debt, increasing regulation and taxation of the financial sector, increasing restrictions on international capital flows, greatly expanding the size and role of government – these are measures that are supposed to lead to economic ruin. The conventional wisdom is also that it is most important to please investors, including foreign creditors, which this government clearly did not do.”
“While not all of Ecuador’s reforms went against orthodox policy advice,” Weisbrot said, “many of them did – and they succeeded. It should be no surprise that Correa is such a popular candidate heading into this Sunday’s elections.”
The paper notes that “Ecuador’s success shows that a government committed to reform of the financial system, can – with popular support – confront an alliance of powerful, entrenched financial, political, and media interests and win. The government also took on powerful international interests as well, in its foreign debt default, its renegotiation of oil contracts, and its refusal to renew the concession for one of the United States’ few remaining military bases in South America.” It notes that this success indicates that developing countries may have more and better policy options than is commonly believed to be the case.
Ecuador’s Foreign Minister Ricardo Patino has reaffirmed his country’s determination to maintain its foreign policy and continue bilateral ties with Iran and other friendly countries despite disagreements by the US.
Recent US legislation aimed at countering the Iran-Latin America ties will not affect Ecuador’s relationship with Iran, Prensa Latina news agency quoted Patino as saying in an interview on Thursday.
On December 28, 2012, US President Barack Obama enacted the law to counter Iran’s growing relations with Latin American countries. The Countering Iran in Western Hemisphere Act requires the US Department of State to develop a strategy within 180 days to “address Iran’s growing hostile presence and activity” in Latin America.
The Ecuadorian minister decried the US legislation and said Washington believes that when it breaks off relations with a country, the rest must also follow suit.
He emphasized that Quito would proceed with its relations with Iran, China, Russia, Middle East, Africa and all the countries with which it has traditionally maintained ties.
He expressed hope that the Community of Latin American and Caribbean States (CELAC) would support Ecuador’s stance during their next meeting.
Patino added that the new US law seeks to affect countries in Latin America that have good relations with Iran as in the case of Ecuador.
This law refers only to the US interests and not the global peace, he said, emphasizing that we should not maintain the interests of the power elites.
Major Latin American nations have enhanced their diplomatic and trade ties with Iran in recent years. The promotion of all-out cooperation with Latin American countries has been among the top priorities of the Islamic Republic’s foreign policy over the past few years.
Washington considers Latin America as its strategic backyard, a term used to refer to the USA’s traditional areas of dominance.
- US, Israel instill fears over Iran’s growing influence in Latin America (alethonews.wordpress.com)
Mérida – The Union of South American nations (Unasur) has created an electoral council, as well as moving forward on initiatives for greater economic integration.
At a meeting yesterday between Unasur nations in Quito, Ecuador, the regional bloc’s newest council was formally inaugurated. The twelve Unasur member countries now cooperate through nine different councils, including defence, energy and health.
According to the Unasur electoral council’s pro-tempore president, Francisco Tavara of Peru, the council’s aim will be “to strengthen the role of Unasur observation and electoral accompaniment missions in regional electoral processes”.
He added that, “The [electoral observation] missions will be a substantial contribution to the creation of a climate of confidence and transparency for the peoples of South America”.
The electoral council was created after the experience of Unasur’s electoral mission to the Venezuelan presidential elections earlier this year. The council’s first official mission will be to the Ecuadorian presidential election in February 2013, when Rafael Correa will seek re-election.
The Unasur electoral council will have a rotating presidency and representatives from a variety of electoral organisations, and can only send an observation mission in response to a member state’s request.
Lenin Housse, the international relations director of the Ecuadorian National Electoral Council, claimed that Unasur electoral observation missions would be different from those of the Organisation of American States (OAS) or the European Union (EU), because they will be “attached to South America’s reality,” with the principle “of establishing mechanisms of accompaniment, information, and joint assessment”.
The electoral council is expected to emit a joint declaration of principles today, which will include “inclusive democracy”, “transparency of electoral processes”, and “promoting citizen democracy”.
New Court, New Bank
The Unasur is also expected to establish South America’s own forum for the settlement of investment disputes, to replace the Washington-based International Centre for the Settlement of Investment Disputes (ICSID).
“The issue is very advanced, practically all [Unasur] countries agree with this. It was proposed to finish the analysis and begin operating next year,” said Ecuadorian foreign minister, Ricardo Patiño, after a meeting between Unasur heads of state in Lima, Peru, last weekend.
Accusing bodies such as the ICSID of having a “colonialist vision and structure”, he said it would be “good for Unasur to have its own organisation for the resolution of disputes, not to have to go to the ICSID or others so that they tell us how to develop our own systems of arbitration”.
In January this year Venezuela announced its withdrawal from the ICSID, citing the court’s bias against Venezuela in its decisions, and the need “to protect the right of the Venezuelan people to decide the strategic orientation of the social and economic life of the nation”. Fellow leftist governments Bolivia and Ecuador left the ICSID in 2007 and 2009 respectively.
Patiño also confirmed that the Bank of the South, which will fund joint projects and promote regional development, should be functioning by April 2013.
“This is one of Latin America’s most important hopes. It’s about regional growth,” he said in an interview with Venezuelan current affairs program Dossier on Friday.
He reported that the bank currently has two-thirds of the necessary capital to begin activities, and that once launched, could support a range of projects, such as regional rail and food storage networks, joint production of generic pharmaceuticals and greater energy integration.
- Unasur praise for the reliability and transparency of Venezuelan electoral system (alethonews.wordpress.com)
- Unasur summit rejects Falklands’ referendum and wants to limit ‘vulture funds’ (en.mercopress.com)
- Unasur adds 30 infrastructure investment projects (nzweek.com)
This Wednesday, June 27, Ecuadoran President Rafaeal Correa, after hearing from a delegation of SOA Watch, has taken the decision to cease sending Ecuadoran soldiers to the School of the Americas.
We wish to express our happiness for this decision by the Ecuadoran government, convinced that the School of the Americas – now called the Western Hemisphere Institute for Security Cooperation –indeed trained and trains Latin American soldiers under the doctrine of National Security, based on fighting the internal enemy. This doctrine has borne human rights violations throughout Latin America.
In 2010, in the Truth Commission Report that investigated human rights violations in Ecuador, the training that Ecuadoran soldiers had received at the School of the Americas was called to attention, and the report recommended that the State cease sending troops to the military school. Today that recommendation has been taken into account and we are happy.
The thousands of victims of human rights violations in Ecuador and all of Latin America have the right to know those responsible for the killings, forced disappearances and torture, and that they are brought to justice to pay for their crimes. At the same time, nations must give guarantees to society and survivors that this will not happen again. One concrete way to do this is to end military training at the SOA, that has caused so much damage and suffering to our people.
Ecuador joins Venezuela, Uruguay, Argentina and Bolivia, who have pulled out of the SOA. As a result, we call on the other countries of Latin America to stop sending their troops to the School of the Americas as soon as possible.
We congratulate President Rafael Correa for this sovereign decision and to finally protect the Ecuadoran people from being subject to future human rights violations.
School of the Americas Watch
Eight years after negotiations began in May 2004, the U.S.Colombia Free Trade Agreement (FTA) came into force on May 15.
Negotiations began together with the four member countries of the Andean Community that are beneficiaries of the Andean Trade Promotion and Drug Eradication Act (ATPDEA), which permits the entry of products not traditionally tariff-free into the U.S. market. One of Colombia’s central reasons for the FTA lay in ensuring that such tariff preferences were made permanent, since ATPDEA officially expired on December 31, 2006.
Businesses that exported under this program—especially in the textile and floriculture sectors in the case of Colombia—pushed hard for the FTA. They believed that it would allow them to gain competitiveness against other countries that did not enjoy similar preferences, and to be on equal terms with those who already had them.
The governments sought to shield important aspects of economic policy—like the treatment to foreign investment, liberalization of the services sector and strengthening intellectual property protection, among others—against the probable intent that a new administration would try to change them. The consolidation of economic liberalization would, according to authorities, attract foreign investments that generate jobs.
In this evaluation, the Andean governments dismissed the fact that tariffs are not currently the main barriers to access to industrialized country markets. They also did not consider that as the United States continued to sign FTAs such with other countries, as it was clear they would, the Andean region would lose its advantages.
Indeed, the U.S. government, as well as the European Union and Japan, use free trade agreements as a way to establish trade and economic rules that in the multilateral World Trade Organization cannot be implemented because of the resistance of a significant number of developing countries.
The Trade Act or Trade Promotion Authority (TPA) of 2002-which authorized the United States government to negotiate FTAs with other countries, says that the expansion of international trade “is vital to national security. Trade is critical to the country’s economic growth and leadership in the world.”
The same act states that trade agreements maximize opportunities for critical sectors of the U.S. economy, such as information technology, telecommunications, basic industries, capital equipment, medical equipment, services, agriculture, environmental technology and intellectual property. The TPA indicates that trade creates new opportunities for the United States, thus preserving its economic, political and military strength.
The process of meetings to achieve the FTA was extensive. What started as a joint negotiation (Colombia, Ecuador and Peru, with Bolivia as an observer) ended with individual negotiations. Peru was the first to secure the signatures of presidents Toledo and Bush in December 2007 and came into force in February 2009, while Bolivia and Ecuador rejected the FTA following changes in their governments.
Venezuela withdrew from the Andean Community in April 2006 and applied for incorporation into Mercosur, arguing that “the free trade agreements by Colombia and Peru with the United States of America have formed a new legal body that attempts to assimilate the rules of the FTA within the Andean Community, changing de facto its nature and original principles.”
While the presidents of Colombia and the United States, Uribe and Bush signed in 2006, the U.S. Congress did not ratify the act because of complaints from some quarters in Congress and civil organizations that pointed to violations of human rights and labor laws. After lengthy negotiations, and commitments made by acting President Santos, the act was ratified by Congress in October 2011. Meanwhile, the tariff advantages achieved under the ATPDEA were renewed annually.
Myth of the “special relationship” under FTA
With the enforcement of the FTA, Colombian authorities hope to convert the country into an export platform for those countries that “do not enjoy privileged relations with this large market, such as Argentina, Ecuador, Brazil and Venezuela.” Government officials from Peru and Chile had previously expressed the same hope.
However, experience shows that these hopes did not become reality for Colombia’s neighbors. Sales to the U.S. market have lost momentum. In Peru, for example, exports to the United States fell 4% in 2011 over the previous year, although the total exports increased by 28% in that period.
The United States dropped from being the top destination for Peruvian exports, to the third–after China and Switzerland. In 2006 24.2% of Peruvian exports were destined for the U.S. market, in 2011 they were only for 12.7%. By contrast, imports from the United States, which in 2006 represented 16.4% of total imports, in 2011 increased to 19.5%. The U.S. has managed to reverse its trade balance with Peru, which has gone from a surplus favorable to Peru of $3.26 million in 2006 to a deficit of $1.52 million.
It is true that in this evolution the [exchange rates] of local Latin American currencies against the dollar have had a major impact, but the slowdown in growth and consumption in the United States does not predict a scenario favorable for emphasizing exports to the United States.
In his speech to the State of the Union in January this year, President Obama proposed a recovery of the economy based on boosting local manufacturing. He proposed tax cuts to companies that invest in the country, tax increases to those established abroad and measures to increase U.S. global market share, creating “millions of new customers for U.S. products in Panama, Colombia and South Korea.”
Colombia should be asking itself: Who really benefits from the Free Trade Agreement?
Ariela Ruiz Caro is an economics graduate of the Humboldt University in Berlin, with an MA in Economic Integration from the University of Buenos Aires. She does international consulting on trade, integration, and natural resources for ECLAC, the Latin American Economic System (SELA), the Institute for the Integration of Latin America and the Caribbean (INTAL), and other organizations. She worked for the Comunidad Andina from 1985 to 1994, as an advisor to the Commission of Permanent Representatives of MERCOSUR from 2006 to 2008, and is a writer for the Americas Program.
Translated by Yasmin Khan
- Imperialism and Violence in Colombia (alethonews.wordpress.com)